Supermarkets May Set Computer-retail Pace

In the rough and tumble supermarket business, the search for a competitive edge in recent years has generated larger stores and a broader mix of merchandise and services.

But as profit margins remain thin and the fierce battle for market share continues, grocery chains across the nation are spending big bucks to test a new computerized merchandising strategy, which -- if accepted by consumers -- could set the pace for electronic retailing, still in its infancy.

Late last month, Lakeland-based Publix Super Markets Inc. acknowledged it is the state`s first grocery chain to begin testing an in-store computer system that allows customers to buy TV sets, sporting goods and other items from a California-based company.

``It`s a way to sell more merchandise without holding the actual inventory,`` said Howard Jenkins, Publix`s vice president of research and development.

Publix spent more than $67,000 for nine computers, which are being tested in Tallahassee and Gainesville stores. But it holds an option to buy a total of 279 machines for $2.1 million from Irvine, Calif.-based CompuSave Corp. That`s almost enough to place a computer in each of its 281 stores across Florida.

But Publix is not alone. Last week, Oakland, Calif.-based Safeway Stores Inc., the nation`s largest grocery chain with nearly 2,400 stores, confirmed it spent about $300,000 on 40 of CompuSave`s electronic catalog computers. Safeway also holds an option to buy about 1,000 more computers for installation in 48 major markets nationwide should the idea prove popular with its customers.

Meanwhile, a bevy of small grocery operations in several states, from Scott`s Food Stores in Fort Wayne, Ind., to Bi-Lo Inc. of Mauldin, S.C., have spent more than a half-million dollars combined to buy and test the machines.

With net profit margins currently at about 2 percent or less for most major and regional grocery chains, according to Forbes magazine, supermarket industry experts view such activity as an extension of the traffic-building moves grocery chains have taken in the past.

The trend toward bigger stores with a larger selection of non-grocery merchandise, which commands a higher markup, is targeted toward busy customers who prefer one-stop shopping. Publix led the charge with automatic teller machines in Florida, while customers at Albertson`s Inc. stores in Florida and Texas, customers can charge their groceries and other items on their Visa card.

``I think you`re going to start to see similarities in department stores and grocery stores as supermarkets become more and more diverse,`` said Tyler Ward, a spokesman with the Florida Retail Grocers Association. ``One more competitive thing will always be tried.``

But the interest in selling, through computer hookup, relatively large- ticket items not held in inventory for a percentage cut is a new tack, said Richard White, a senior consultant with Touche Ross & Co. in San Francisco.

``It`s clearly a way for supermarkets, in a world of consistency, to differentiate themselves from each other,`` he said. ``You`re going to see a lot of interest, with people buying in to a small extent and an option on a big rollout if it becomes economically feasible.``

CompuSave`s corporate affairs director, Richard Smith, said the fledgling company has sold about 400 Touch-n-Save computers for installation since April. ``Supermarkets are virtually tailor-made for the concept we`re promoting,`` he said. ``They have low margins, they need an edge, and you`re forced to go to a grocery store at least once a week.``

White estimates supermarket operations hold options outstanding on more than 10,000 CompuSave Touch-n-Save machines. Dallas-based Southland Corp. alone, which operates the 7-Eleven convenience store chain, holds an option to buy 6,400 computers while it tests seven machines at stores in Tyler, Texas. Should it exercise the option -- worth about $48 million -- the company could place a computerized catalog at every store it operates in the United States and Canada.

Although a relatively recent development, electronic retailing itself is not new.

The Chicago-based Florsheim Shoe Co. has a computerized ordering network -- made by ByVideo of Sunnyvale, Calif. -- at its Galleria Mall store in Fort Lauderdale and other locations to augment existing inventory. Minneapolis- based Dayton-Hudson Corp. and Sears, Roebuck & Co. are implementing computer systems to help customers sort a wide variety of product styles and colors down to a few alternatives. And Stamford, Conn.-based Comp-U-Card International Inc. mails printed catalogs to its members, who may order through personal computers in their homes.

Touche Ross estimates that by 1990, $5 billion to $10 billion in business will be conducted through 50,000 transaction terminals nationwide. But whether consumers will use computers to buy products a store does not normally carry is unclear.

White at Touche Ross points out that sales from printed catalogs are expanding more rapidly than in-store retail sales. And he adds that familiar, name-brand merchandise may sell well, possibly allowing manufacturers whose products are traditionally sold in department stores to gain market share.

``People know what they`re getting with a Sony TV, but I don`t know if it`ll work with clothing or cosmetics,`` he said.

Nevertheless, not everyone is interested in the concept. Gary Michaels, vice chairman of Albertson`s Inc., said, ``We want to sell people something and have them come back a week later and buy it again. With this, you have warranty problems and other things, and we don`t want to get into it.``